That part of government policy which is concerned with
raising revenue through taxation
and with deciding on the amounts and purposes of government
spending. Keynesian economic theorists believe that government
can, and should, regulate the overall pace of activity in the
national economy through fiscal policy, principally by
deliberately having government borrow to spend more than it takes
in (running a budget
deficit) to increase total demand for goods and services in
times of high unemployment and economic slowdown (the deficit
being created either by cutting taxes
or by increasing spending or both). Similarly, Keynesian
theorists would advocate having government spend less than it
takes in (running a budget
surplus) to cool down the national economy when too great an
expansion of total demand has pushed production to its physical
limits and threatens to bring on excessive inflation.